Millions of Americans dream of being able to retire early. The reduced stress, the free time and even the social status that it may bring are very appealing to many workers, especially those who have worked their way higher up on the corporate ladder. Unfortunately, the staggering costs that come with this dream have made it impossible for all but the most fortunate. In fact, many workers are discovering that they are going to have to work longer than they originally anticipated - an adjustment that can seem unbearable to some. But there are several advantages to this course of action that may not be readily apparent. This article examines the benefits that come with working past your normal retirement age. (It's not too late, but if you want to retire comfortably, you'll have to be aggressive. Check out 6 Late-Stage Retirement Catch-Up Tactics.)
TUTORIAL: Introduction To Retirement Plans
Increased Earned Income
The additional years of employment mean not only additional current income, but also the chance to continue contributing to an IRA or company retirement plan. But a worker who stays in his or her position another five years and makes the maximum contribution to a traditional or Roth IRA will retire with another $30,000 in retirement savings, plus whatever growth the contributions accumulated during that time.
Increased Social Security Income
Those who work until age 70 or later and defer receiving Social Security until they stop working can usually expect to receive substantially greater benefits than those who retire at the normal age. The retirement benefits estimator on the Social Security website shows that a man born in 1970 who made $50,000 last year will receive $1,181 a month if he retires at age 62, $1,772 per month if he retires at age 67 and $2,244 if he retires at age 70. This comes to a difference of $472 per month if he is willing to wait another three years to begin receiving benefits. This means that he will get an additional $5,664 per year in benefits for the rest of his life. That comes to a total of $113,280 if he lives until age 90.
A Shorter Timeframe to Fund
This is perhaps the biggest benefit to retiring later. Funding a retirement that only lasts for 15 or 20 years is a radically different proposition than funding one that starts at age 60. Not only can working additional years provide additional retirement income, it reduces the number of years that those savings must last, thus raising the amount of income that can be drawn from the portfolio.
Extended Employee Benefits
Paying for health insurance out of pocket can be a major expense for retired couples who are getting up in years. Working longer can allow you to keep your group health insurance coverage that you have through your employer, which can save you thousands of dollars in premiums. Other benefits, such as life insurance, may also be continued at a lower cost. Some employers may also offer special incentives for older workers to continue working, such as stock options or other financial incentives, as this delays the necessity of training their replacements.
Greater Peace of Mind
Knowing that your retirement is more securely funded can allow you sleep much better at night. It can also allow you to make more definitive plans once you retire because you will likely have a much clearer picture of your finances.
Staying sharp on the job can help you stay fit and healthy, and keep you hale longer during your retirement. Those who retire earlier often become sedentary sooner, and develop health problems as a result. These problems can lead to substantial medical expenses, in some cases.
TUTORIAL: Qualified Plans
The Bottom Line
These are just some of the reasons why it can be wise to retire later than you originally planned. Those who continue to work at the end of their careers will also usually get additional income at the peak of their earnings. For more information on the advantages of retiring later, consult your human resources (HR) department or financial advisor. (These common mistakes can sabotage your nest egg and your plans for retiring. See Five Retirement-Wrecking Moves.)